The JSE is proposing amendments to the JSE Listings Requirements (Requirements) and JSE Debt Listings Requirements (published on Thursday, 27 October) and invites related comments to the three sets of proposed changes by close of business on Wednesday, 30 November 2022.

The amendments cover the following and are summarised below:

• consultation paper;
• financial disclosure framework; and
• Debt Listings Requirements (Annual Improvement Project 2022).

CONSULTATION PAPER

Part A: The introduction of dual class voting structures: Weighted Voting Share Structures

The Standard Segment of the London Stock Exchange (LSE), the New York Stock Exchange, the Nasdaq Stock Market, Toronto Stock Exchange, Nasdaq OMX Stockholm, the Hong Kong Stock Exchange (HKEX) and the Singapore Stock Exchange (SGX) permit listed companies to adopt dual class share structures. Such structures also feature in Denmark, Finland, France, Italy, Ireland and Sweden, but are not allowed in Germany, Portugal and Spain.

The JSE is proposing to allow companies with weighted voting structures (dual class shares) to list on the Main Board of the JSE. In this regard:

• a weighted voting share structure is a share structure that gives certain shareholders voting rights that are disproportionate to their shareholding or any structure that achieves a similar outcome;
• an enhanced voting process is a voting process in a general meeting of the applicant where votes are cast on the basis that one weighted voting share is limited to one vote;
• an ordinary voting share is in relation to a weighted voting share structure where a share carries one vote; and
• a weighted voting share is in relation to a weighted voting share structure where a share carries weighted votes but otherwise has the same rights as an ordinary voting share.

As a result the currently applicable drafting in the Requirements referring to the prohibition on ‘low voting structures’ and ‘high voting structures’ is proposed to be deleted.

It is proposed that the following criteria should be met to list with a dual class share structure:

• the Main Board listing entry criteria must be met;
• the weighted voting shares will not be listed or traded on the JSE;
• the ratio of each weighted voting share cannot increase and will not carry more than 20 votes per share;
• certain admission criteria should be incorporated in the MOI or constitutional documents of a foreign applicant;
• compliance with governance arrangements, including, inter alia, that:
• the weighted voting share must have automatic conversion provisions that convert a weighted voting share into an ordinary voting share if the weighted voting share is sold or transferred to a person and on the expiry of 10 years from the listing date of the issuer;
• holders of ordinary voting shares may agree at a general meeting to allow an extension to the time sunset provision provided the holder/s of weighted voting shares may not participate in such vote;
• holders of weighted voting shares must hold at least 10% of the economic interest in the applicant on listing;
• holders of ordinary voting shares holding at least 10% of the total voting rights must have the ability to convene a general meeting;
• the holders of weighted voting shares must undertake that their entire shareholdings in respect of the applicant may not be disposed or transferred for a period of 12 months from the listing date; and
• the following matters must be voted on through the enhanced voting process: a variation of rights attaching to securities; an appointment and removal of auditors; an appointment or removal of independent non-executive directors; a remuneration policy and implementation report; a reverse takeover; and a removal of listing;
• the prospectus/pre-listing statement should include, inter alia:
• a statement on the cover page that the applicant has a weighted voting share structure;
• details of the weighted voting share structure and its risks and the rationale for adopting a weighted voting share structure;
• the matters that are subject to the enhanced voting process and a summary of the key provisions of the weighted voting share structures; and
• details of each holder of weighted voting share;
• changes in capital: no further weighted voting shares can be issued, except in a rights issue, bonus issue, capitalisation issue, scrip dividend, consolidation or sub-division of securities, in each case in conjunction with ordinary voting shares;
• circulars, annual reports and SENS: if an applicant is an issuer with a weighted voting share structure, it must include such in prominent statement on the cover page of circulars, annual reports and announcements;
• annual financial statements must include disclosure of the dual class share structure; and
• section 4 Guidance Letter: Control regarding paragraph 4.28 of the Requirements dated 24 March 2004: has been deleted.

Part B: Free Float – New Listings:

The proposed changes are as follows:

• Main Board listing criteria: an applicant seeking a listing on the Main Board must have 10%, as opposed to the currently applicable 20%, of each class of equity securities held by the public to ‘promote’ (as opposed to the currently mentioned ‘ensure’) reasonable liquidity, representing at least 100 shareholders (the latter of which is a new requirement altogether);
• free float assessment: currently, securities are not regarded as being held by the public if they are beneficially held by any person interested in 10% or more of the securities, unless the JSE determines that such a person can be included as a member of the public. The proposed change is the deletion of this and the introduction of the guidance that a controlling shareholder holding shares is not to be perceived as being held by the public; and
• provision 4.26 has been deleted: this provided that securities will be regarded as being held by the public under certain circumstances if so held by (a) certain fund managers/portfolio managers; (b) depository receipt programme participants; or (c) nominee shareholders.

Part C: Special Purpose Acquisition Companies (SPACs):

SPAC admission criteria include:

• Board requirements: As opposed to the currently applicable generic requirement that the SPAC applicant should show that its board of directors has satisfactory experience in the management of viable assets, a more detailed amendment has been proposed in terms of which the applicant must satisfy the JSE that its board of directors will be capable of identifying and evaluating viable assets and completing the acquisition of such viable assets. It is proposed that the applicant will also have to show that it has appropriate technical and commercial experience and a positive track record, which includes (a) specific contribution to business growth and performance; the ability to manage relevant business operations risks and to identify and develop acquisition opportunities; and (b) positive corporate governance and regulatory compliance history;
• Equity participation of the board of directors: In addition to the current requirements of the board subscribing for shares or units in the applicant representing at least a 5% interest, the proposal is that if such subscription is at a nominal value, the interest held by the board of directors must not exceed 20% of the applicant’s issued share capital on listing;
• Conflicts of interest: in terms of a new paragraph, it is proposed that the applicant discloses all incentives payable to the applicant’s directors and their associates (not only remuneration); details of any service agreements between the applicant and their directors and associates; details of any other fiduciary or contractual obligations by the board of directors to other companies; details of any other potential conflicts of interest between the applicants and their boards of directors and associates; and the proposed governance measures to identify, avoid and/or manage potential conflicts of interest as identified above;
• Redemption rights: this new definition has been introduced, being a right afforded only to shareholders who voted against the proposed acquisition of viable assets, to elect to redeem securities and receive a pro rata portion of the amount held in the investment account of the SPAC. In terms of a new proposal, a SPAC must be afforded a redemption right subject to the following restrictions, inter alia:
• that the board of directors and their associates may not exercise redemption rights;
• restrictions on the redemption price;
• an applicant may establish a limit as to the maximum number of securities to which each eligible shareholder may exercise a redemption right, provided that such total limit may not be less than 10% of the issued share capital of the applicant on listing;
• the redemption right mechanism and timing must be clearly explained in the prospectus/pre-listing statement of the applicant; and
• redemption rights should be included in the MOI and the escrow agreement that must be submitted to the JSE for approval;
• Dual class share structure: a SPAC may not adopt a dual class share structure on the listing in the SPAC listing criteria;
• Acquisition of viable assets: a SPAC must have completed an acquisition of viable assets within 36 months, as opposed to the currently applicable requirement of 24 months, from the date of listing as a SPAC. The rest of the provision, which states that the JSE may extend this date on application from the SPAC, has been removed;
• Escrow arrangements: Escrow is now proposed to be defined as escrow or similar custodial arrangement to the satisfaction of the JSE, to safeguard the capital of the SPAC for the protection of investors, as prescribed by the JSE;
• Acquisition circular to shareholders:  a new provision is proposed, which sets out that a circular is not a pre-listing statement, but it is rather equivalent to a category 1 acquisition circular.  Details to be included in such circular have been set out; and
• Guidance letter: SPAC, dated 13 June 2017: it is proposed that this be deleted in its entirety. It set out SPAC guidance in respect of new listing criteria, category 2 acquisitions and forecasts.

FINANCIAL REPORTING DISCLOSURES

Financial reporting disclosure changes are being proposed for simplification of the applicable wording; removal of previous obligations to always prepare an abridged report (which report follows the IFRS format applied to interims being IAS 34); and removal of a current obligation to obtain an auditor’s opinion on interim results published where the previous set of annual results are accompanied by a modified opinion.

The proposed changes are to the following: 

• Block 1: The scope and nature of the financial results to be announced by issuers;
• Block 2: The content of the results announcement;
• Block 3: Minimum contents of interim results, condensed financial statements and summary financial statements;
• Block 4: Minimum contents of annual financial statements, which includes annual reports; and
• Block 5: Practice notes and guidance letters.

DEBT LISTINGS REQUIREMENTS: ANNUAL IMPROVEMENT PROJECT 2022

Changes have been proposed to the Debt Listings Requirements under the Annual Improvement Project 2022, in terms of which the JSE has determined that (i) certain provisions in the Debt Requirements require more clarity/context and/or (ii) there is ambiguity in the interpretation which needs to be remedied. This is a similar project to the one undertaken and finalised over the last year in relation to the JSE Listings Requirements.

We remain available to provide further guidance on listings, equity capital markets and debt capital markets. This newsflash has been prepared by David Yuill, Mili Soni and Raisha Ramkhelawan. Please reach out to your usual contact in our M&A Practice for further information.